bank run blog

Data from the Federal Reserve shows that, as can be expected in a deflationary depression, bank lending has continued to contract. This, in the long term, would actually be good for the underlying fundamentals of the economy, but it is disastrous for those who hope to paper over the cracks and rebuild in the same sandbox. The Associated Press reports :

“A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday.

The Fed’s new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February.

Meanwhile, 65 percent of banks said they tightened standards on nontraditional mortgages, such as adjustable-rate loans with multiple payment options. That was up from 50 percent in the last survey.

‘Even if you had a stellar credit history, banks were reluctant to lend in this environment,’ said Richard Yamarone, economist at Argus Research. With unemployment rising, it raises the odds of more people defaulting on their mortgages, he said.”

According to the Financial Times, the tendency was also apparent in commercial loan activity :

“About 40 per cent of US banks said they had tightened standards on commercial and industrial loans to businesses over the previous three months, the survey reported. The Fed said this proportion was “still very elevated” but noted that it represented fewer than half the banks for the first time since January 2008.

About 80 per cent of US banks said they had increased spreads on loans to large and mid-sized businesses, down from 95 per cent in January.

‘Large majorities of both domestic and foreign banks reported a less favourable or a more uncertain outlook, a worsening of industry-specific problems and a reduced tolerance for risk’ as reasons for tightening standards and terms on business loans, the Fed said.”

Associated Press : Fed says more banks tighten home loan standards

Financial Times : Bank lending terms keep squeeze on consumers

The loose monetary policy and quantitative easing of Ben Bernanke’s Federal Reserve does have hugely inflationary implications for the future, and some serious economists have plausibly argued that we may yet see hyperinflation in the US. But for now the country remains in a deflationary depression, even though few in the mainstream media care to acknowledge it.

In the accompanying video from Yahoo Finance, Henry Blodget talks with analyst John Mauldin, president of Millennium Wave Advisors, who warns that unprecedented asset deflation is still underway, with both institutional and individual deleveraging to continue for the foreseeable future :



A new quarterly report from the IMF would seem to bolster the thesis that developed debtor nations, like the US, will experience deflation as the downturn matures. According to the AFP :

“The IMF unveiled a darker outlook for the US economy Wednesday than just three months earlier, forecasting a deeper recession in 2009 and no growth at all in 2010.

The International Monetary Fund sharply downgraded its outlook for the world’s biggest economy, predicting a decline in output of 2.8 percent for all of 2009 and zero growth for 2010.

The latest figures in the IMF’s semiannual World Economic Outlook report were cut from the IMF’s January update by 1.2 percentage points for 2009 and 1.6 points for 2010.

The forecasts are far more pessimistic than those from the US Federal Reserve, White House, congressional experts and many private economists.

‘Despite large cuts in policy interest rates, credit is exceptionally costly or hard to get for many households and firms, reflecting severe strains in financial institutions,’ the IMF report said.

‘In addition, households are being hit by large financial and housing wealth losses.’”

Yahoo Finance Tech Ticker : Forget About Inflation… It’s Deflation You Should Worry About

Agence France-Presse : IMF sees no US growth through 2010

While economists and politicians fret over whether China and Russia will ever lead a movement to replace the US dollar as the world’s reserve currency, American citizens have already done so as they grapple with the effects of the Depression that was bought for them with their own 401ks. USA Today is reporting :

“A small but growing number of cash-strapped communities are printing their own money.
Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses.

The systems generally work like this: Businesses and individuals form a network to print currency.
Shoppers buy it at a discount — say, 95 cents for $1 value — and spend the full value at stores that accept the currency.

Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.”

The concept, never entirely abandoned in small town America, has enjoyed a resurgence over the past year. According to the Daily Telegraph :

“Some of the currencies have been around for years but the recent economic downturn has encouraged others to follow suit. According to some estimates, there are now more than 75 local currency systems across the country.”

USA Today : Communities print their own currency to keep cash flowing

Daily Telegraph : Struggling US towns print their own currency

The other shoe has dropped.

Bloomberg reports that mortgage delinquincies of commercial properties are beginning to been seen across the US. Bloomberg writes;

“Loans secured by properties that were writtenassuming rental growth have been unable to meet targets, leading to increased defaults. The delinquency rate for North American commercial real estate loans in mortgage backed securities may triple in 2009 as loans default.”

Some regions have been hit hard and hit early, Bloomberg reports;

“Office, retail, apartment and industrial properties with mortgage payments 60 days late or more rose to 3.93 percent as of March in Cleveland area and 3.75 percent in the Detroit area…The North American commercial property delinquency rate is 1.1 percent according to Standard and Poor’s.”

Cleveland had a commercial real estate vacancy rate of 14.8 in 2008 which is forcast to rise to more than 20 percent by 2010. Ohio has unemployment levels that outpace the national average. In December, the unemployment rate in Ohio was 8.8 percent and the state lost a further 214,000 jobs in January. Detroit’s unemployment rate is even greater, with 10.6 percent of its workers receiving unemployment insurance.

The service also said that that Phoenix area had the “second highest percentage of 30-day late commercial real estate loan payments” and that other regions, such as the Las Vegas area, could see commercial defaults increasing over the course of 2009.

“Cleveland and Detroit are just the first to see the stress. They’re the canaries in the coal mine”, Bloomberg qoutes chief economist for Grubb Ellis, “There is really no part of the country being spared.”

see story
Bloomberg : Cleveland Commercial Loan Delinquencies Signal More Declines

The bedrock asset of most Americans, their home, is declining in value at a record rate. CNN reports;

“The Federal Housing Finance Agency (FHFA) reported that home prices fell a record 1.8% for the month, compared with October, declining at an annualized rate of nearly 20%. That follows losses of 1.2% and 1.1% in the two previous months. For the 12 months ended November 30, prices fell 8.7%, which was the largest 12-month price drop ever for the 17-year-old index.”

Reductions in home value were even greater in certain regions, CNN wrtes;

“According to FHFA, the Great Plains and prairie states of North and South Dakota, Nebraska, Kansas, Iowa, Missouri and Minnesota were the worst-hit U.S. regions in November. Prices there dropped a whopping 2.7%.”

The FHFA index tracks the purchase price of homes bought with loans of $417,000 or less that are sold to or guaranteed by the federally controlled mortgage firms Fannie Mae and Freddie Mac.

see story-
CNN Money : Home prices see sharp dip